Should first home buyer dive into the market amidst COVID-19 pandemic
While in previous economic shocks the property market has done well, there is no clear cut proof of how it would do during a pandemic. That is clear now is that sales on the property have plummeted. Experts believe this is a short-term occurrence, and that it will bounce back quickly, even if house prices fall.
A lot of luxury / high-end properties can be purchased at a much lower price at the moment. This is likely due to the fall in the share market, many people not receiving bonuses or having their business affected by lockdowns.
How fast does the real estate market respond to a crisis?
The equity price looks ahead and continues to decline quickly when there is a recession, and then rebound before the economy does.
The property market will also respond to the bond market at a different pace and will therefore take longer to react to a crisis.
It is because the real estate market consists primarily of home buyers not developers and so it responds to unemployment and not looking forward to the share market.
Will property price drops due to coronavirus?
Property prices are extremely likely to drop due to COVID-19.Although the housing market was gaining traction because of interest rate cuts and credit constraints loosening, the pandemic has changed the scenario.
Customer confidence and job security are important purchasing considerations when deciding to purchase a home.
Buyers could postpone buying property because of the financial difficulties they face due to coronavirus such as employment reduction, shortened hours, no income bonuses, etc. It could trigger household debt, and demand could decline in the months ahead.
The ban on in-person inspections and sales would also trigger a short-term hit on real estate prices.
Also with the reductions in emergency rates and quantitative easing, house prices do not stay at current levels.
Experts believe property prices will fall because of:
- Borrowers' confusion over not having to take out a home loan if they are not comfortable in making repayments.Because of the coronavirus their job and income can be at risk.
- There are fewer auctions and inspections due to social distancing measures, and land transactions have shrunk. While prospective buyers and sellers are shifting online, there has been a reduction in the number of people who view properties.
- Auction clearance rates are falling, suggesting there are more homes left unsold.
- Recession is a major threat, because two negative quarters of GDP growth could occur and unemployment will increase.
Although the housing market has performed comparatively better against negative economic shocks than the share market , it is important to consider the economic recession caused by the coronavirus.
Do I even have to buy a house during a coronavirus pandemic?
The low interest rate environment does not last for a long time, and once the economy gathers momentum, property prices does bounce backward.
However, low interest rates mean lower home loan repayments, as banks tighten their lending policies, it may be more difficult for you to obtain a home loan.
When you have stable jobs and income, and not danger of being cut. You would then have a better chance of approving a home loan. It is better to get pre-approved now, because the coronavirus would have a cascade of effects on the economy and lenders.
Furthermore, you must also be able to make repayments on your home loan and also on the costs of buying a house.